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Income Tax Appellate Tribunal (ITAT) Kolkata in a recent judgment has quashed the computation of income from house property by substitution of municipal valuation by annual value based on rental rates available at the website www.magicbricks.com

Case Details:
ITA No. 113/Kol/2013; Assessment Year:2009-10
DCIT (Appellant) vs United Bank of India (Respondent)
Date of Order: 30-12-2015

Brief facts of the Case:
The appellant assessee bank disclosed rental income from property let out and declared loss from house property to the extent of Rs. 54,502/- . The assessee submitted the details of municipal valuation of the subject mentioned properties at Rs. 13,84,554/- and stated that the higher of the municipal valuation or actual rent should be adopted as income from house property. The Assessing Officer (AO) during the course of assessment proceedings substituted the same by adopting the annual value of the property based on average rental rates available in the website www.magicbricks.com. Accordingly the AO arrived at the rental figure of Rs. 2,61,58,020/- and computed income from house property accordingly by giving deduction towards municipal taxes paid and standard deduction @ 30% on the balance. On first appeal, the CIT-A accepted the contentions of the assessee and directed the AO to adopt the municipal valuation for assessment of rental income from subject mentioned properties. Being aggrieved with CIT-A decision, the revenue went in appeal before the Tribunal.

Contentions of the assessee:
The assessee contended that the subject mentioned properties were old properties and were let out to different tenants for the last 30 years. In all the earlier assessment years, the income declared by the assessee bank from the subject mentioned properties were accepted by the department and assessments completed u/s 143(3) of the Act. He argued that the assessee had offered the municipal valuation of properties which is higher than the actual rent received by the assessee. He argued that in any case, no addition towards rental income could be made by the AO by adopting the average rental figures taken from the website.

Held:
ITAT stated that the figures obtained from the website www.magicbricks.com cannot be treated as a reliable evidence and upheld  the order of CIT-A.

Important Excerpt from ITAT Judgment:
We have heard the rival submissions and perused the materials available on record. We find that the Learned CITA had correctly adopted the municipal valuation for determination of rental income from subject mentioned properties. We also find that the municipal valuation is higher than the actual rent received in the instant case. For the sake of convenience, let us get into the provisions of section 23 which is reproduced below:-

Annual value how determined.

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

The computation of annual value in accordance with the provisions of section 23 of the Act could be better understood in the following manner:-

A = Actual rent received – Rs. 15,062/-
B = Fair Rent - Rs. 2,61,58,020/-
C = Standard Rent – Not Applicable and hence Rs Nil
D = Municipal value - Rs. 20,44,361/-

Annual Value (Z) = Higher of B or D = 2,61,58,020/-
Expected Rent (Y) = Lower of Z or C = Nil
Gross Annual Value = Higher of Y or A = 15,062/-

In the instant case, the Learned CIT(A) had adopted the municipal value of Rs. 20,44,361/- as the gross annual value and proceeded to compute the taxable income from house property on that basis. Against this , the assessee is not in appeal before us. Hence we find that the revenue should not be aggrieved at all in the instant case.

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ITAT-House property annual value computation based on Rental Rate on magicbricks.com website instead of municipal valuation quashed | 01-01-2016 |